Nuix Limited 

NXL Details

Search Warrant for Investigation: Nuix Limited (ASX: NXL) provides investigative analytics and intelligence software services. The company offers Nuix platform, which helps customers to process, normalize, index, enrich and examine data from various sources. NXL has announced regarding a search warrant executed at its Sydney office to seek documents in relation with an investigation into an affair of an unnamed individual.  The company believes the warrant is not in relation to any wrongdoing on the company’s part. 

1HFY21 Financial Highlights: NXL has registered a decline in revenue to $85.32mn in 1HFY21 against $88.78mn in 1HFY20 due to foreign currency price movement. NXL has incurred a loss of $16.56mn in 1HFY21 due to higher operating costs. NXL has seen an increase in its cash balance to $128.24mn as on 31 December 2020 against $38.53mn as on 30 June 2020 due to IPO proceeds in December 2020.

Revenue Highlights (Source: Analysis by Kalkine Group)

Managerial Changes: Rod Vawdrey, CEO of the company has given a notice to retire from NXL’s board. Rod has agreed to remain with the company through the announcement of the financial year ending results. Meanwhile, NXL looks for a replacement option for Rod Vawdrey. In addition, CEO of the company, Stephen Doyle is being terminated by a mutual agreement. Mr. Doyle has been replaced with Chad Barton as an interim CFO. 

Key Risks: The company is exposed to changes in foreign exchange prices. In addition, the company is required regulatory approvals constantly. Therefore, any delay in regulatory approvals may impact the business. 

Outlook:  NXL has revised its revenue guidance downwards in a range of $173-$182mn for FY21 against its previous guidance between $180-$185mn. Similarly, Annualised Contract Value (ACV) revised downwards between $165-$172mn for FY21 against previous guidance between $168-$177mn. NXL expects EBITDA between $64.6-$66.6mn for FY21. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

 Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Technical View - NXL's prices recently broke an important support level of AUD 2.57 by the downside, indicating a downward trend for the stock. On a daily chart, the leading indicator RSI (14-period) is trading in negative territory at ~34.43 levels, however, forming a moderate positive divergence with the price action. Prices are also sustaining below the trend following indicators 21-period SMA and 50-period SMA, further supporting a negative stance. Now a major resistance for the stock appears at ~$2.85 level while support is at ~$2.29 level. 

Note: The purple color line in the chart shows RSI (14-period) while the green color histograms at the bottom of the chart represent volumes. The red color line indicates 21-period SMA, and the sky-blue color line indicates 50-period SMA. 

Stock Recommendation: The stock of NXL gave a return of ~-25.58% in the last one month and a return of ~-48.90% in the last three months. The current market capitalisation of NXL stands at ~$828.19mn as of 24 June 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$2.515-~$11.855. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering the company has reported a search warrant executed for investigation and incurred a loss in 1HFY21. For this purpose, we have taken peers Damstra Holdings Ltd (ASX: DTC), Envirosuite Ltd (ASX: EVS), ELMO Software Ltd (ASX: ELO) to name a few. Considering the company has registered decline in revenue in 1HFY21, search warrant to investigate on a document, downgrading revenue guidance, and valuation, we recommend a “Sell” rating on the stock at the current market price of $2.56, down by ~1.916% as on Jun 24, 2021.

NXL Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.